How to stop financial leaks and save more

Invest the amount you BURN every month on smoking cigarettes, drinking alcohol and eating out at luxury hotels according to this plan. The end result: Better health and higher savings.

Financial plumbing

Many have a tendency to complain about inflation, taxes and EMIs as deterrents to saving and investments. But the question is are we making a conscious effort to save and control spending? Do we have any financial leaks and are we ignoring them?

My intention is not to confuse, but to emphasise that you need to fix these leaks. So that you can create and build wealth for a lifetime.

Arun, a marketing professional earning Rs 24 lakh per annum post-tax was surprised how his friend Girish who earned just Rs 18 lakh per annum and having similar family conditions could save and invest. Taking Girish into confidence he told his problems to him. Girish gave him a patient and empathetic hearing. Later Girish explained where Arun spent unnecessarily or created financial leaks and how he could mend those leaks. This could help Arun achieve his financial independence and goals.

The author is an MBA (Finance) and Certified Financial Planner. He is the director and chief financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

The financial leaks

In addition to his necessary expenses, Arun spent a lot on things that were unnecessary and unhealthy. Some of the financial leaks or avoidable expenses included his smoking and drinking expenses. Since he belonged to the upper strata of society Arun believed that drinking and entertaining his friends and colleagues with foreign liquor at least once a month was essential. These expenses amounted to about Rs 1.5 lakh to Rs 2 lakh of his annual income.

In addition Arun dined in star hotels at least once a month, with dining out in other restaurants at least twice a week. This took up about Rs 1.5 lakh annually. The family believed in shopping in expensive malls and watching movies in multiplex that cost him about Rs 300,000 per annum. In addition there was the yearly recreation and other lifestyle expenses.

Method of financial plumbing

Girish emphasised on Arun to cut down on his cigarettes and alcohol to not only save money and invest, but also to care for his health. In addition Girish suggested that he find other healthy ways to relax like doing deep breathing, meditation and relaxation exercises daily. Next he suggested that he entertained his friends in more healthy ways and minimised his visits to star hotels and restaurants for a meal.

He told Arun that dining at home, experimenting on their new favourite recipes. Cooking together as a family provided the togetherness and helped to get the family's cooperation in meeting the savings goals. Shopping just for essential needs, with entertainment in theaters or watching videos at home instead of visiting multiplex theaters saved money on tickets and in travelling to these theaters that were on the outskirts of the city.

I am sure we all could relate and find some that could identify with our spending habit patterns. 

Your excellent life balance sheet

Just have a look at how fixing financial leaks could help:

• Your monthly unhealthy expenditure of Rs 6,000 on alcohol, if invested at 8 per cent would give you a corpus of Rs 10,97,676 in 10 years and Rs 35,34,122 in 20 years
• Next your unhealthy monthly expenditure of Rs 2,000 on cigarettes will grow to Rs 3,65,892 in 10 years and Rs 11,78,040 in 20 years at the same rate of growth
• Similarly, your extra unwarranted expenditure of watching movies at multiplex and shopping in malls of Rs 5,000 each month would grow to Rs.9,14,730 in 10 years and to get Rs 29,45,102 in 20 years at the same growth rate
• Cutting on extra dining out expenses of just Rs 5,000 per month could accumulate Rs 9,14,730 and Rs 29,45,102 in 10 years and 20 years at the same interest rate
• Aren't you surprised this amounts to Rs 33 lakh in 10 years and Rs 1.06 crore in 20 years with a mere cutting Rs 18,000 a month? You are healthier and financially sufficient all your life
• Plumbing some other financial leaks switching off fans, heaters, air-conditioners and other electric and electronic appliances when not in use would help make savings and reduce the energy crisis
• Avoiding financial leaks with avoiding the use of credit card unless very necessary would help avoid payment of high interest. Detesting the idea of just making payment of minimum amount on credit card outstanding balances is one of the worst financial leaks. This applies also to giving priority to paying off low interest loans in favor of high interest loans
• Next avoiding the financial leak of paying high interests paid on loans, with earning lower interests in savings accounts and fixed deposits is important

Conclusion:

Hope you are set ready to fix your financial leaks and to channellise the extra savings in a fruitful investment option. Here's the road map to riches. Fix your financial leaks; get extra savings; invest the extra savings properly; become wealthier.